Oil falls towards $79 as US hurricane fades

Singapore, 14 September Oil slid towards $79 a barrel today, as a hurricane subsided in the Gulf of Mexico, though prices held near the previous day’s record high on supply worries ahead of peak winter demand.

US crude for October dropped 42 cents to $79.67 a barrel by 0450 GMT, having settled up 18 cents in New York today, when prices hit a record of $80.20 a barrel. London Brent crude for November lost 27 cents to $76.85.

US gasoline futures eased 0.4% after leading gains today, as Hurricane Humberto was downgraded to a tropical storm after shutting oil shipping channels and three refineries when it slammed onshore in Texas.

Valero said it expected to restart its Port Arthur, Texas plant by Sunday, after the U.S. refiner, Total, and Shell shut the plants when a power failure cut electricity.

Oil prices are still up 31% this year and traders are looking ahead to the next Gulf of Mexico storm, Tropical Storm Ingrid, which formed late on Thursday.

“Mounting evidence that the global oil market is tightening fast has made markets increasingly concerned over future supply availability as we head into the winter season,” said Barclays Capital.

Lower refinery supplies coincided with the start of winter stockpiling for heating fuel in the western hemisphere. US heating oil stocks rose last week but remained about 30% down on last year.

Supplies of crude in the US fell last week to the lowest level in eight months, while gasoline stocks slid to their lowest in two years.

To try to placate consumers, the Organization of the Petroleum Exporting Countries agreed a small supply increase on Tuesday. But analysts said OPEC’s deal to raise output by 500,000 barrels per day (bpd) from 1 November was not enough to reverse oil’s rally.

“Despite OPEC’s decision to raise crude output, the market is concerned,” said John Waterlow, an analyst from Wood Mackenzie.

Robust economic growth in the world’s second-largest oil consumer, China, continued to bolster energy consumption, evident in higher refinery usage, which rose 7.8%t last month versus a year ago, government data showed today.

Though oil prices have quadrupled since 2002, when adjusted for inflation the price is below the $90-a-barrel peaks of the Iranian Revolution in 1979 and the start of the Iran-Iraq War the following year. REUTERS